Treatment Woes Can Bolster Hospitals’ Profit; The study underscores the challenges of improving the safety of medicine when few hospitals have financial inducements to do so

Updated April 16, 2013, 4:10 p.m. ET

Treatment Woes Can Bolster Hospitals’ Profit

By CHRISTOPHER WEAVER

Hospitals have faced pressure for years to make visits to their wards safer. But their investments in everything from hand-washing campaigns to infection-fighting robots have done little to curb the thousands of yearly injuries and deaths caused by avoidable medical complications.

New research suggests one obstacle: Treatment complications and infections can inadvertently bolster the bottom line.

Surgical complications such as infections and procedure-related strokes were on average twice as lucrative as operations that went smoothly at one large hospital system, researchers from Harvard Medical School, Boston Consulting Group and Texas Health Resources, reported Tuesday in the Journal of the American Medical Association.

The study underscores the challenges of improving the safety of medicine when few hospitals have financial inducements to do so, the researchers said. Texas Health, a Dallas-based hospital network, which made medical and financial records of more than 34,000 surgeries available for the study, said it would discuss the results with insurers in hopes of better aligning payments to reward successes.“The conundrum tells us that payment reform has to be central to health-care reform,” said Mark Lester, a senior quality executive at Texas Health and an author of the study. “We will always work as hard as we can to reduce surgical complications, [but] the economics say, ‘You’re not helping your contribution margin,’ ” he said, using an industry term for per-procedure profits, excluding fixed costs.

Like many hospital systems, Texas Health has adopted a surgical checklist to cut back on mistakes. The checklist requires surgeons to ensure infection-preventing antibiotics are administered before picking up the scalpel, among other things. Dr. Lester said it wasn’t yet clear whether the effort—which began in 2011—has reduced complications but that early data were promising.

The new research found private-insurance and Medicare payments soared when surgeries went awry, outpacing extra treatment costs. In one example, a complication during an intestinal surgery performed on a Medicare patient could lead to an extended intensive-care stay, boosting payments fivefold.

“You have a situation where it’s clear that if hospitals invest resources to reduce complications, it’s going to hurt them financially,” said Paul Ginsburg, president of the Center for Studying Health System Change in Washington. Dr. Ginsburg, whose degree is in economics, wasn’t involved in the study.

On average, procedures with complications netted $15,700, compared with $7,600 for procedures that went well, before factoring in fixed costs. About 5.6% of the procedures studied led to complications. The most lucrative followed spinal, neurological and heart-bypass surgeries.

“We’ve done a variety of work, including with the simple checklist in surgery that we’ve shown to reduce complications by more than one-third, but people weren’t adopting it,” said Atul Gawande, a Harvard Medical School professor and surgeon at Brigham and Women’s Hospital in Boston. “We wondered whether finances we’re playing a part it in,” said Dr. Gawande, the study’s lead author.

In 2008, the federal Medicare program stopped paying hospitals for treating certain preventable infections acquired by patients during their stays and to repair “never-events,” extreme errors such as leaving surgical equipment inside patients after suturing operative wounds. The 2010 federal health-law provision could lead to payment cuts of up to 3% for hospitals that often see patients return soon after treatment for avoidable reasons such as untreated pneumonia.

But despite years of efforts, the problem of complications has proved intractable. A 1999 Institute of Medicine report suggested as many as 100,000 people a year were killed by such problems, and more than one million were injured. In 2010, a study published by the New England Journal of Medicine focusing on North Carolina hospitals—a state that hosts aggressive patient-safety campaigns—found those rates remained essentially unchanged.

“We’re still undoubtedly paying for complications,” said Don Bradley, chief medical officer for Blue Cross Blue Shield of North Carolina, the state’s largest insurer. The insurer has in recent years begun tying some hospital payments to levels of complications and cutting some surgeons with high complication rates out of certain health plans it offers, Dr. Bradley said.

A goal of the federal health law is to push some hospitals to go further. The law allows Medicare to contract with some hospitals—Texas Health Resources is one—in a new way that allows facilities that form “accountable care organizations” to reap some rewards when they lower overall costs.